It’s said that the most effective way to sell an idea or influence decision making is through the unconscious mind. In other words, if you want someone to do something, make them think it was their idea.

Parents commonly use this technique on small children, managers use it on staff (and vice versa) and financial advisers use it on clients.

The soft skills that many advisers naturally possess mean that they’re highly skilled in the art of persuasion. They give advice, without being pushy, by planting a thought in a client’s mind and gently guiding them to make smart choices.

But when does persuasion become manipulation? And is it ethical in financial advice?

My previous article, Challenging WINIWIMI and the importance of framing, looked at how to present information and frame questions to get the most out of client conversations.

It referenced the behavioural finance concepts of choice architecture or nudging, which is effectively reducing the number of choices presented to a client and subtly manipulating their thought process. Narrow Approved Product Lists (APLs) are an example of not-so-ethical nudging.

However, what if a client is being nudged towards a strategy or solution that is in their best interests and will help them achieve their goals?

According to Harvard Law School professor Cass Sunstein, nudging is an unavoidable part of life. It happens in every sphere from nature to religion to government.

While some nudges are objectionable because they are sneaky and lead to “illicit ends”, there is less likely to be a convincing ethical objection where the “ends are legitimate” and people/organisations are transparent about their intention to nudge a person in a certain direction, according to Sunstein.

For example, it’s no secret that advertising is about manipulation. Not only are product features and quality routinely exaggerated but consumers are subliminally told that if they buy a certain product, they’ll become better looking, more desirable and happier.

A financial services example could be property developers targeting self-managed superannuation fund (SMSF) trustees and presenting them with the simple choice between gearing to buy an off-the-plan apartment and, alternatively, facing an uncertain retirement.

Cases like this are unlikely to pass the pub test, however, if the purpose is to achieve the best outcome for the client then it is hard to see how the use of these strategies could be deemed unethical.

That leads to another element with choice architecture called decision staging.

Decision staging is a technique used to help people make decisions and understand those decisions. It narrows the focus of conversations to choices between specific attributes and alternatives.

In the case of a couple who needs to make broad and complex decisions about their life insurance, the discussion could be chunked down into manageable stages.

The order in which issues, solutions and options are raised can influence outcomes, therefore, advisers can facilitate greater engagement by understanding the sequential nature of decision-making.

Technology can aid this process although it can never replace the role of an adviser.

Sticking to the life insurance example, comparison software can score and rank insurers based on characteristics such as price, features and organisational strength but without an adviser talking to a client and determining the attributes they value the most, the client may not get the best solution for them.

Importantly, they may not get a solution that excites them enough to actually take action.

As advisers, we want to help our clients achieve their goals, be they maximising investment returns, paying off their home by a certain age and/or transitioning to a comfortable retirement.

Advice processes should be considered and shaped, in light of this.

Nudging clients by using thoughtfully designed processes is likely to enhance client engagement and improve client buy-in to advice recommendations.

In the end, Sunstein concludes that choice architecture should not, and need not, compromise dignity or self-determination.

Paul Moran is the co-founder of iFactFind and principal of Moran Partners Financial Planning.

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